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Investment Funds Update Europe - France

The Arrêté of 27 February 2017 and published to the Official Journal on 7 March 2017 has amended significantly the General Regulations of the AMF (the Autorité des Marchés Financiers - “AMF”, the French financial markets authority).

The updated GRAMF now includes, among others, the following provisions related to:

the publication of the transactions in shares or units of UCITS or AIFs (such as exchange-traded funds, “ETFs”) listed on a regulated market carried out by investment service providers, within the framework of their post-trade transparency obligations, under certain conditions;

the marketing in France to retail clients of AIFs from a third country;

the financial delegation of UCITS and AIFs management (cf. see below); and

the implementation of redemption gates in UCITS and AIFs (cf. see below).

Terms for Implementing Gates in UCITS and AIFs - New AMF Instruction and Update of the AMF Instructions and Position-Receommendation

Pursuant to the authorisation for open-ended funds to implement gates or liquidity restrictions when warranted by exceptional circumstances, the AMF has published on 15 March 2017 a new Instruction n° 2017-05 addressing this newly created legal regime.

Among others, this Instruction provides guidance on:

the requirement to describe the implementation and use of gates in a fund’s prospectus, rules and/or by-laws;

the information to be provided to unitholders or shareholders in case of any changes in a fund’s prospectus, rules and/or by-laws when gates are implemented;

thresholds for triggering the gates;

the maximum duration of such gates.

As a result, the AMF has also updated its policy to incorporate this possibility offered to certain French funds to provide redemption gates.

Further to the launch of the FROG (“French Routes and Opportunities Garden”) workshop between the AMF and the AFG (“Association Française de la Gestion Financière”, the French professional association of asset managers) in 2016 aiming to increase French funds’ international competitiveness, the AMF has updated its doctrine to take into account FROG’s recommendations. The update are as follows:

1. AMF French collective investment scheme (CIS) classifications

Further to FROG’s proposals and the public consultation launched in June 2016 on the abolition of AMF specific classifications of French collective investment schemes, used to differentiate certain French funds according to the primary nature of the investments being made, the AMF has published its feedback on 15 March 2017. The AMF has now adopted the following provisions, pursuant to which:

certain AMF classifications could be maintained, on an optional basis;

the “Diversified” AMF classification will be abolished as from 31 December 2017;

CIS not using the AMF classification will be required to inform the AMF under which category of funds they fall into as part of the statistical report to the Banque de France and the European Central Bank.

Following its policy update on November 2016 pertaining to the presentation of management fees for UCITS and certain AIFs, the AMF has clarified on 15 March 2017 in the latest amended Instructions, the content of the Fund’s prospectus, rules or by-laws, specifying that, on an optional basis, the management company can merge the financial management fees and external administrative fees. In such a case, the relevant section would be entitled “financial management fees and external administrative fees of the management company”.

3. Extension of the scope of financial management delegation

Pursuant to the update of the GRAMF amending articles 313-77 and 318-58, French management companies can now delegate their financial management functions not only to (i) other management companies authorised to manage UCITS and AIFs but also to (ii) other entities authorised to provide portfolio management services and to (iii) authorised entity established in a third country subject to the condition that there is effective cooperation between the AMF and the supervisory authorities of the relevant country. AMF doctrine has therefore been updated.

4. Possibility to retain the historical reports of past performance (« track record») of UCITS and AIFs in the event of a transformation of a French FCP (“Fonds Commun de Placement”, form of common funds) to a French SICAV (“Société d’investissement à capital variable”, open-ended investment companies)

The AMF has updated its policy under the Position-Recommendation n°2011-05 (Guide to the regulatory documents governing collective investments schemes) by including this new possibility offered to UCITS and AIFs subject to the condition that the Fund does not change its investment policy and management objective.

5. Update of the AMF policy in anticipation of the entry into force of European PRIIPs (Packaged Retail and Insurance-based Investment Products) Regulation

In anticipation of the entry into force of PRIIPs on 1 January 2018, the AMF has updated its policy, in order to:

allow French funds open to professional investors that are not subject to the obligation of drafting a KIID, to finally establish a KIID in compliance with UCITS Directive; and

note that from the date of entry into force of PRIIPs, certain French dedicated funds, including professional investment funds, professional specialised investment funds, professional real estate collective investment undertakings and professional private equity funds, authorising the subscription or the purchase of their shares or units to retail clients if their investment is equal or above to EUR 100 000, could be subject to the obligation to establish a KIID in compliance with PRIIPs.

AMF - Publication of a Guide to the Use of Stress Tests as Part of Risk Management Within Asset Management Companies

Pursuant to a public consultation launched in 2016, the AMF published on 23 February 2017 a guide aimed at French management companies presenting an overview of the stress test practices. The AMF provides general advices and examples of the implementation and use of stress tests that must be adapted specifically to all the different funds, portfolios or management companies.

Further to the study on the ETFs and associated risks published on 14 February 2017 in which the AMF observed the growth of the market globally and in Europe, the French regulator wishes to update its policy accordingly in order to adapt and strengthen the French ETFs framework.

The AMF submits the three following proposals to public consultation:

"Proposal 1: to widen the options available to French ETFs, in certain market situations, for repaying in-kind redemption requests on the primary market (with the exception of liquidations);

Proposal 2: to implement an action plan in the event of significant valuation or liquidity problems on the underlying-assets market, with a view to possibly suspending subscriptions and redemptions;

Proposal 3: to draw up a continuity action plan in the event of a default or an event affecting a counterparty”.

The AFG has published its Governance Charter of French SICAV (open-ended investment companies) on 20 March 2017. The objective of this Charter is to promote best practices in order to improve the quality of governance of French SICAV in the interests of investors. This Governance Charter addresses the following three principles, relating to:

the independence of board directors;

the minimum number required of independent members serving within a collegial body of a SICAV and fixing the threshold to at least one third of the members or two persons (whichever is lower);

the maximum number of mandates held by theses members.

SICAV are authorized to mention in their documentation if they fully comply with these measures.

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